International Seaways to 'capitalize' on Diamond S merger amid tanker market recovery: CEO

International Seaways sees the stage set for a fourth-quarter tanker market recovery, enabling the company to benefit the completion of its "high accretive" merger with Diamond S Shipping in the third quarter, CEO Lois Zabrocky said Nov. 9.

The deal with Diamond S tripled International Seaways' fleet size to 89 tankers and transformed the company into the largest diversified US-listed tanker owner.

"With our expanded footprint, we are ideally positioned to capitalize on a tanker market recovery during a time when global oil demand is growing, inventory destocking is nearing completion, refinery margins are improving and OPEC production is increasing," said Zabrocky, also International Seaways' president, during the company's third-quarter earnings call.

As of Nov. 4, International Seaways registered the largest time charter equivalent revenue improvements for its 10 VLCCs, with earnings for spot and time-chartered ships achieving $20,000/d for the 63% of Q4 days so far fixed or 40% more than actual Q3 TCEs of $14,300/d. The company's five Panamaxes and seven Long Range 1 tankers combined scored second place with overall TCEs rising to $15,900/d for the 48% of the Q4 days fixed through Nov. 4, a 37% rise to Q3 overall TCEs of $11,600/d. For its 15 Suezmaxes, which have been moved fully into Penfield Marine's commercial management with the merger, the company saw a 27.4% rise in TCEs for the 62% of Q4 fixed until Nov. 4 or $15,800/d compared with Q3 earnings of $12,400/d.

Yet in the Medium Range sector, where International Seaway's 41 tankers are commercially managed in the CPTA and Norient pools, TCE revenue has seen a decline of 6.8% to $9,600/d during the 47% of Q4 days fixed through Nov. 4, compared with actual Q3 revenue of $10,300/d. The resumption of operations at US refineries, after Hurricane Ida knocked out 2.2 million b/d upon making landfall on the Louisiana coast on Aug. 30, has supported clean tanker freight rates only from mid-October, when spot freight on the benchmark 38,000 mt US Gulf Coast-to-Brazil route rose to a monthly average of Worldscale 121.3, or $21.69/mt, up w24.8 from September's average of w96.5, or $17.26/mt, S&P Global Platts data showed. The to-date November freight average has increased to w179.28 or $32.06/mt.

Oil market fundamentals make for sustained tanker market recovery

While the Q4 revenue dollars achieved so far in the clean tanker sector are in line with company expectations, Zabrocky said results are bound to turn positive further into the fourth quarter, reflecting the general tanker market recovery progress.

Oil inventories have been rapidly declining, with OECD total oil industry stocks ranging below the 2016-2020 average since July this year, the company earnings presentation showed. Further, the International Energy Agency's October global oil demand forecast estimated 2021 demand to be up 5.5 million b/d compared with 2020 and increasing by a further 3.3 million b/d during 2022, through increased mobility.

On the supply side, the conclusion of European field maintenance, the gradual ramp-up of crude oil production by OPEC+, a coalition of OPEC and other oil producers, and the recovery of US hurricane-related shutdowns are set to increase ton-mile demand in the dirty tanker sector.

In the US, Zabrocky said prospects for increased crude production were at over 12 million b/d, with US Gulf Coast exports expected to stabilize around 3 million b/d, which would positively reflect on the Americas spot VLCC earnings.

"Our lightering unit is quite busy right now, which we see as a leading indicator," she said.

US crude oil exports averaged 2.8 million b/d in October, up 100,000 b/d from October 2020, Energy Information Administration data showed, while production stood at an average of 11.4 million b/d, up from 10.5 million b/d a year ago.

In the Americas, rates have reached the highest levels recorded since summer 2020, as increased East inquiry has pushed VLCC USGC and Brazil/Uruguay-to-China rates up by over 20%, to be last assessed Nov. 9 at lump sum $5.45 million, or $20.19/mt, and w44.5 or $15.34/mt, respectively.

"Owners' sentiment remains positive, and rates are expected to continue their upward trajectory for the rest of the year," the Nov. 4 S&P Global Platts tanker freight market forecast said. "TCEs also posted monthly gains; however, the higher bunker price environment continues to weigh on owners' earnings."